all employment contracts are not created m€¦ · “employment contract” apply to all tort or...

w w w. m y a z b a r. o r g34 A R I Z O N A AT T O R N E Y M A R C H 2 0 0 7

ore than 10 years havepast since the ArizonaE m p l o y m e n tProtection Act(“AEPA”)1 was enactedin 1996. In that time,case law has clarifiedsome of the AEPA’sprovisions but left mostothers unsettled.2

One question that continues to createneedless confusion is what employmentcontracts fall within the scope of theAEPA’s one-year statute of limitations,A.R.S. § 12-541(3). Does the term“employment contract” apply to all tortor contract claims arising out of theemployment relationship?

This article demonstrates that theAEPA’s one-year statute of limitationsrelates only to “employment contracts”that alter or limit an employer’s right toterminate at-will.

The AEPA’S ScopeThe AEPA radically altered the commonlaw of wrongful termination. The statute:• abolished implied oral employment

contracts altering at-will employment,making only express written contractsactionable as an exception to the at-willdoctrine;

• limited the instances in which a wrong-ful discharge claim could be brought;and

• made the employee’s exclusive remedyany statutory remedy available for vio-lation of state statutes or of the publicpolicy arising out of the statute.The legislation enacting the AEPA was

Senate Bill (S.B.) 1386, which was com-prised of four interrelated sections:(1) a preamble or “Intent” section;(2) the text of what is now A.R.S. § 23-

1501;(3) an amendment to the Arizona Civil

Rights Act, making the prohibition ofsexual harassment applicable to smallemployers; and

(4) amendment of A.R.S. § 12-541,adding a one-year statute of limita-tions3 for breach of “employment con-tract” and “wrongful termination”(what is now A.R.S. § 12-541(3), (4)).

What the Legislature did not discuss orexpressly address in S.B. 1386 was whether

an “employment contract” unrelated tomodification of the at-will relationship wasincluded in the AEPA’s one-year statute oflimitations.

Are other “employment agreements”—other than modification of at-will employ-ment—within the scope of the AEPA’sone-year statute of limitations? Whatabout contracts for wages, commissions,severance pay or covenants not to com-pete? The answer lies in the Legislature’sstated purpose in enacting the AEPA andits statute of limitations.

Why Enact the AEPA?From the strident language of its pream-ble, the AEPA represents another chapterin the Legislature’s bitter feud with thecourts,4 this time in the area of employ-ment relations.

In the “preamble,” the Legislaturesternly rebuked the Arizona SupremeCourt for overstepping its bounds in “cre-ating the public policy of the state” andstated its “Intent”5 to abolish any develop-ment of the common law by the courts inthe area of employment relations, specifi-cally assailing Wagenseller v. Scottsdale

MAll Employment Contracts Are Not Created

35

BY THOMAS M. ROGERS AND DAVID F. GOMEZ

Thomas M. Rogers is a partner in MillerLaSota & Peters, Phoenix. He is a past

Chairman of the State Bar’sEmployment/Labor Law Section and is Editor

In Chief and Co-Author of the ARIZONA

EMPLOYMENT LAW HANDBOOK.

David F. Gomez is president of Gomez &Petitti, PC, Phoenix, and exclusively practices

in the area of labor and employment law.

M A R C H 2 0 0 7 A R I Z O N A AT T O R N E Yw w w. m y a z b a r. o r g

Arizona’sOne-YearStatute of

Limitations

Memorial Hospital,6 a prime example of thehigh court’s development of the commonlaw that significantly modified the “at-will”doctrine.7

The at-will doctrine holds that anemployer may discharge an employee “forgood cause, for no cause or even for causemorally wrong, without being therebyguilty of legal wrong.”8 Prior to the 1980s,in the absence of a contract for a term,employment was presumed to be at-will inArizona.9 Beginning in the late 1960s andearly 1970s, some courts began to ques-tion the soundness of the “at-will” doc-trine and its adverse economic impact onworkers by recognizing exceptions to therule when termination contravened publicpolicy or where there were implied promis-es of job security.10

In 1984, Leikvold v. Valley CommunityHospital 11 recognized that the at-will rulecould be modified by implied promises ofjob security as evidenced by employeemanuals, disciplinary procedures, writtenor spoken promises or by conduct. Jobsecurity thus could become part of theemployment contract and limit theemployer’s absolute right to discharge an

employee on an at-willbasis.12 Loffa v. IntelCorp.,13 decided in 1987,made it clear that underLeikvold a contract for anindefinite duration wasnot necessarily an at-willcontract as a matter oflaw—that is, failure tofollow the disciplinaryprovisions of a compa-ny’s policy could be aviolation of the impliedemployment contract.

In 1985, Vermillion v.AAA Pro Moving &Storage 14 adopted thepublic policy doctrineand recognized the rightof employees to pursuewrongful discharge tortclaims where the employ-er terminated theemployee for reasons thatwould violate public pol-icy.15 The ArizonaSupreme Court expand-ed and refined the public

EQUALs Are Not Created

policy exception in Wagenseller,16 holdingthat “an employer may fire for good causeor for no cause [but] [h]e may not fire forbad cause—that which violates public pol-icy.”17 Thus, terminating a nurse for herrefusal to participate in a “mooning” paro-dy was a violation of public policy againstindecent exposure and hence was “badcause.” An explicit statutory expression ofpublic policy was not required: “Publicpolicy” could be found in the state’s judi-cial decisions as well as its constitution andstatutes.18

In 1986, Wagner v. City of Globe 19

expanded the concept of public policy stillfurther, concluding “that on balanceactions which enhance the enforcement ofour laws or expose unsafe conditions, orotherwise serve some singularly publicpurpose” inures to the benefit of the pub-lic 20 by the protection of the “lives, libertyand property of our people.”21 In 1988,Broomfield v. Lundell22 dealt a massive blowto the at-will presumption by extendingthe public policy tort doctrine and tortremedies to violations of the Arizona CivilRights Act.

The Legislature’s StatedIntent

Predictably, vocal elements within thebusiness community opposed these limita-tions on their unfettered right to fireemployees on an at-will basis.

For several years, prior to the passage ofthe AEPA, the Arizona Chamber ofCommerce and other business interestshad turned to the Legislature and wereable to get similar legislation introducedbut failed to gain its passage.23 In 1996, byframing the AEPA as a measured legislativeresponse to the runaway train of employ-ment litigation,24 the Legislature finallypassed the AEPA after a last-minuteamendment that applied the Arizona CivilRights Act’s protection from sexual harass-ment to employers of fewer than 15employees.25

The AEPA’s “Intent” section succinctlystated why the Legislature enacted theAEPA. Wagenseller was specifically identi-fied as the reason for the need for new leg-islation, expressing the view of theLegislature’s majority in 1996 that thepublic policy of the state could not be

decided by courts, nor any cause of action,such as wrongful discharge in violation ofpublic policy, be recognized or establishedexcept by the Legislature.26 This bold state-ment of intent was subsequently rejectedby the Arizona Supreme Court as “patent-ly unconstitutional,” although it upheldthe constitutionality of one part of theAEPA.27 Nonetheless, the “Intent” sectionremains a valid statement of why S.B. 1386was passed.

The AEPA’S NecessaryImplication

What was not discussed by the Legislaturein the language of the legislation nor in itshearing process but necessarily implied wasthe definition of “employment contract.”The AEPA states that the employmentrelationship is severable at any time byeither party at-will unless there is a “writ-ten contract” to the contrary.28

Throughout the hearings before theLegislature and in the plain wording ofS.B. 1386, it was a limitation of theemployer’s right to terminate “at-will”that was discussed. In the AEPA, theLegislature authorized only three ways todo this:• First, at-will employment could be lim-

ited by statute such as the Arizona CivilRights Act or other statutes, such asthose discussed in the AEPA’s lan-guage.29

• Second, at-will employment could belimited by the AEPA itself, which pro-hibited retaliation against an employeewho refused to commit an act or omis-sion that would violate theConstitution of Arizona or the statutesof the State,30 retaliation for whistle-blowing relating to violations of theConstitution of Arizona or Arizonastatutes,31 and retaliation for exercise ofrights under state law.32

• Third, the AEPA allowed for a limita-tion of the employer’s right to termi-nate “at-will” by a “written contract”signed by the employee and employeror that was set forth in the employmenthandbook or manual or any similardocument distributed to the employeeif that document expressed the intentthat it was “a contract of employ-ment.”33

Prior to the AEPA, an oral or writtenagreement setting forth a specific term ofemployment was long recognized as anexception to the at-will rule. Leikvold heldthat whether any particular personnel man-ual language, course of conduct or oralrepresentation modified the at-will rela-tionship and became part of the employ-ment contract was a question of fact for ajury to decide, regardless of the employer’ssubjective intention that the employmentcontract was at-will.34 The AEPA clearlysought to limit Leikvold contract claimsthat alleged that the at-will relationshiphad been modified by express or impliedcontract.

In the context of S.B. 1386, theAEPA’s statute of limitations, A.R.S. § 12-541(3), (4), used the terms “employmentcontract” and “contract actions” as theyrelated to A.R.S. § 23-1501(2)’s “thiswritten contract” or “written contract …setting forth the employment relationship[that] shall remain in effect for a specifiedduration of time or [that] otherwiseexpressly restrict[s] the right of either partyto terminate the employment relation-ship.”35 If “this written contract” is notsigned, “this written contract must be setforth in the employment handbook ormanual or any similar document distrib-uted to the employee, if that documentexpresses the intent that it is a contract ofemployment.”36 The AEPA discussed andrequired that only a “written contract”could overcome the at-will presumption.

The AEPA (A.R.S. § 23-1501(3)(a))limited “contract” claims for terminationof employment to those claims where“[t]he employer has terminated theemployment relationship of an employeein breach of an employment contract, asset forth in paragraph 2 of this section.”37

As discussed, the AEPA’s section 2 (§ 23-1501(2)) addressed only contracts “settingforth that the employment relationshipshall remain in effect for a specified dura-tion of time or otherwise expressly restrict-ing the right of either party to terminatethe employment relationship.”

The AEPA’s “Contract”Language

In S.B. 1386 and in the public discussionsbefore the Legislature, the only reference


All Employment Contracts Are Not Created Equal

to “contract” was in the context of modifi-cation of at-will employment. There wasnever any suggestion that the AEPA relat-ed to or encompassed other kinds of agree-ments, oral or written, occurring in theemployment relationship, such as thoserelated to wages, non-piracy of customersor employees, trade secrets, insurance ben-efits during or after employment, return ofcompany property, indemnification, non-disparagement, commission or severancepay, or reimbursement of expenses.Because the plain meaning of “employ-ment contract” was obvious fromprovisions of S.B. 1386 andbecause there was no discussion ofthe term, there was no controver-sy at the hearings about the defini-tion of an “employment contract”as other than one between anemployer and employee that mod-ified at-will employment. Similarly,there was nothing to suggest thatthe term “employment contract”differed when S.B. 1386 amendedA.R.S. § 12-541, as follows:

There shall be commenced andprosecuted within one yearafter the cause of actionaccrues, and not afterward, thefollowing actions: …

3. FOR BREACH OF ANORAL OR WRITTENEMPLOYMENT CON-TRACT INCLUDINGCONTRACT ACTIONSBASED ON EMPLOYEE HAND-BOOKS OR POLICY MANUALSTHAT DO NOT SPECIFY A TIMEPERIOD IN WHICH TO BRINGAN ACTION.

4. FOR DAMAGES FOR WRONG-FUL TERMINATION.

Indeed, the language of A.R.S. § 12-541(3) faithfully echoes the language usedin A.R.S. § 23-1501(2). The signed con-tact of employment or one set forth in theemployment handbook or manual or anysimilar document distributed to theemployee, as allowed under A.R.S. § 23-1501(2), was the only “employment con-

tract” for which an employee had a claimpursuant to A.R.S. § 23-1501(3)(a).

Thus, the necessary implication andmeaning of the AEPA’s language and itsamendment of the statute of limitations isthat “employment contract” relates solelyto agreements affecting a term of employ-ment or altering or limiting the at-will pre-sumption. The Legislature’s intent was torein in the courts and specifically limitWagenseller. No other contracts arising outof the employment relationship wereaffected.

Arizona Decisions on theAEPA’s Scope

None of the reported cases interpretingthe AEPA and its statute of limitations hasreviewed the AEPA’s specific languageregarding the meaning of “employmentcontract.” None has addressed whetherother contractual relationships occurringin the employment relationship—otherthan those affecting the term of employ-ment or altering or limiting the at-will pre-sumption—are included in the AEPA’s useof the term “employment contract.”However, the cases support the proposi-tion that the AEPA’s use of “employmentcontract” is limited to those that alter orlimit the at-will doctrine.

In Cronin v. Sheldon, the ArizonaSupreme Court, while narrowly upholdingthe AEPA’s abolishment of the so-called“Broomfield” tort claim based on theArizona Civil Rights Act, noted that “apanoply of constitutionally protected com-mon law tort remedies remains undis-turbed as fully beyond the scope of theAEPA.”38 As Cronin instructs, the AEPAdoes not preclude recovery of compensa-tory damages under Title VII of the CivilRights Act of 1964, 42 U.S.C. § 2000e asamended, or other federal claims, collater-

al common law tort claims relat-ed to discharge from employ-ment, including intentionalinfliction of emotional distress,negligent infliction of emotionaldistress, interference with con-tractual relations, defamation,assault and battery, fraud, orother protected claims.39

Nowhere does Cronin suggestthat the statutes of limitation forthese other kinds of statutory orcommon law causes of action,such as assault and battery, fraud,and other protected claims, wereaffected by the AEPA’s amend-ment to A.R.S. § 12-541(3), (4).

In Taylor v. Graham CountyChamber of Commerce,40 thecourt also recognized the AEPA’slimited scope, stating that theAEPA “addresses claims for ter-mination of employment” butnot other wrongful acts or omis-sions” (emphasis added). Taylor

noted that the AEPA related to claims forwrongful discharge41 and, like Cronin,held that the AEPA had changed the priorArizona case law that allowed wrongfuldischarge tort claims for discriminationagainst employers of fewer than 15employees.42 However, the Taylor court,like Cronin, did not discuss whether otherwrongful employment acts or omissionsarising out of a contract and unrelated totermination of employment were affectedby the AEPA.

In Zenaty-Paulson v. McLane/Sunwest,Inc.,43 the District Court, in an unpub-lished decision, granted dismissal of a so-called breach of employment contractclaim on the basis of the AEPA’s amend-



It is not unusualfor two or more

possible limitationsperiods to applyto claims arisingout of the same

factual situation.

ment of A.R.S. § 12-541(3), which pro-vided a one-year limitations period forbreach of employment contract. The courtdid not discuss the definition of “employ-ment contract” in rendering its decision.However, the thrust of the Zenaty-Paulson’s breach of contract complaint wasthat her termination was a wrongful dis-charge in violation of the employmentcontract restricting the right ofthe employer to terminate theemployment relationship at-will.44 Such a claim would belimited by the AEPA’s statuteof limitations, A.R.S. § 12-541(3).

Restrictions on theEmployer Right ToTerminate At-Will

The AEPA by necessary impli-cation of its language and con-text applies only to those con-tracts related to a term ofemployment or to limitation ofthe employer’s right to termi-nate at-will. The AEPA’samendment of A.R.S. § 12-541(3) only relates to wrong-ful discharge in violation of anagreed stated term of employ-ment or a contract otherwiserestricting the at-will doctrine.

Of course, many other con-tractual relationships arise inthe context of employmentother than those related to aterm of employment orrestricting the employer’s rightto terminate at-will. Theseinclude contractual agreementsrelated to such matters as relo-cation to and from the site ofthe job; payment of non-U.S.taxes on living costs for workout of the country; stockoptions, including agreementsfor reconveyance of stock upontermination of employment;non-competition or non-piracyof customers or employees;trade secrets and return andnon-use of proprietary infor-mation; pension agreements;

insurance benefits during or after employ-ment; return of company property; indem-nification; non-disparagement and job ref-erences; commission or severance pay;wages; and reimbursement of expenses.Such other kinds of agreements are oftenincluded in employment agreements,employer policies or handbooks.

In light of the AEPA’s use of the term

“employment contract” as referring specif-ically to contractual provisions that relateto a term of employment or to limitationson the right of the employer to terminateat-will, agreements that do not modify theat-will relationship are simply not withinthe meaning or scope of “employmentcontract” under the AEPA.

Therefore, the AEPA’s statute of limita-



FIGURE 1. Statutes of Limitations for Employment Claims

Cause of Action Applicable Statute of Limitations

AEPA Claim for Breach of EmploymentContract that alters or modifies at-will

employment

AEPA Claim for Damages for wrongfultermination

Arizona Wage Act: Statutory claim forunpaid wages and treble damages (liability

created by statute)

Arizona Wage Act: Statutory claim forunpaid minimum wages

Common law oral contract claim forunpaid wages, severance, commissions, etc.

Common law written contract claim forunpaid wages, severance, commissions, etc.

All other common law oral contract claimsarising out of the employment relationship

unrelated to altering or modifying at-willemployment

All other common law written contractclaims arising out of the employment relationship unrelated to altering or

modifying at-will employment

Statutory claim for Trade Secrets Act violation (liability created by statute)

Common law written contract claimfor breach of confidentiality agreement

A.R.S. § 12-541(3)1 year

A.R.S. § 12-541(4)1 year

A.R.S. § 23-355,A.R.S. § 12-541(5)1 year

A.R.S. § 23-364(H)2 years, 3 years (if willful)

A.R.S. § 12-543(1)3 years

A.R.S. § 12-5486 years

A.R.S. § 12-543(a)3 years

A.R.S. § 12-5486 years

A.R.S. § 44-401,A.R.S. § 12-541 (5)1 year

A.R.S. § 12-5486 Years

tions, A.R.S. § 12-541(3), should notaffect common law contract claims unrelat-ed to limiting at-will employment.

Different Contracts,Different Statutes of

LimitationIt is not unusual for two or more possiblelimitations periods to apply to claims aris-ing out of the same factual situation. “Thedefense of the statute of limitations is notfavored by the courts, and where two con-structions are possible, the longer periodof limitations is preferred.”45 (Figure 1 onp. 40 sets out some of the statutes of limi-tations applicable to the employment rela-tionship.)

For instance, prior to the enactment ofthe AEPA, the Legislature enacted astatute to protect compensation arising outof an employment relationship, its protec-tion separate from and in addition to com-mon law breach of contract. The ArizonaWage Act, A.R.S. § 23-350 et seq., pro-hibits an employer from procuring labor orservices by a specific promise of compensa-tion and then evading financial responsibil-ity. It protects employees from an employ-er’s groundless refusal to pay compensa-tion that was promised and due “in returnfor work performed.”46 The Arizona WageAct provides treble damages to deteremployers from withholding or delayingpayment of sums that employees haveearned.47 Because the treble damagespenalty arises out of the statute, to pursuea claim for treble damages, the action mustbe filed within one year.48

Effective Jan. 1, 2007, the “Raise theMinimum Wage for Working ArizonansAct,” A.R.S. § 23-362 et seq., amended theArizona Wage Act by providing, amongother things, that a civil action may bebrought to recover statutory unpaid mini-mum wages (plus twice that amount) andinterest within two years after a violationlast occurs or three years, if the violationwas willful.49

However, a common law claim forbreach of contract for failure to pay wagespursuant to an oral agreement relating tocompensation starts to run as to eachmonth’s wages at the end of the month,and a claim for each month’s wages would

be governed by the three-year statute oflimitations.50 For common law breach ofcontract for failure to pay wages pursuantto a written agreement, the statute of lim-itations would be six years.51

Although employees could sue underthe Arizona Wage Act to recover trebledamages, their failure to do so within therequisite limitations periods would noteliminate their potential common lawbreach of contract claims for failure to paywages under a three- or six-year statute oflimitations.

ConclusionThe AEPA’s amendment of A.R.S. § 12-541(3) relates only to an “employmentcontract” that specifies duration ofemployment or otherwise expresslyrestricts the employer’s right to terminateat-will. The AEPA addressed claims for“termination of employment” but notother wrongful employment acts or omis-sions.52 This is clearly demonstrated by theAEPA’s legislative history, the full text ofS.B. 1386, the plain meaning of the term“employment contract” as used in S.B.1386, and the absence of any discussionwhatsoever before the Legislature that theAEPA intended to address the payment ofwages or amounts agreed to be paid aftertermination of the employment relation-ship, or any of the other kinds of employ-ment contracts. Accordingly, the AEPA’sstatute of limitations cannot be applied toother contractual agreements occurring inthe employment relationship.

The AEPA’s one-year statute of limita-tions applies only to “employment con-tracts” that alter or limit at-will employ-ment.

w w w. m y a z b a r. o r g 41M A R C H 2 0 0 7 A R I Z O N A AT T O R N E Y

endnotes1. Section 3 of CHAPTER 140, S.B. 1386

(1996), Proposed Ariz. Rev. Stat. § 23-2501, later renumbered after enactment to§ 23-1501.

2. See, e.g., Cronin v. Sheldon, 991 P.2d 231(Ariz. 1999), in which the ArizonaSupreme Court upheld the constitutionalityof the AEPA’s abolition of the so-called“Broomfield” public policy wrongful dis-charge tort claim based on the employer’salleged violation of the Arizona Civil RightsAct (A.R.S. § 41-1461 et seq.) under theanti-abrogation and non-limitation provi-sions of the Arizona Constitution (art. 18,§ 6, art. 2, § 31). However, the Court leftopen the possibility that the AEPA’s aboli-tion of the Broomfield tort claim wasunconstitutional under art. 2, § 13’s denialof equal privileges, and similarly left as openquestions of the constitutionality of theAEPA’s other provisions. See also, Galati v.America West Airlines, Inc., 69 P.3d 1011(Ariz. Ct. App. 2003) (“whether a commonlaw tort for wrongful termination still existsafter the [AEPA] is an open and muchdebated question in Arizona law”), andDavid F. Gomez, The EmploymentProtection Act after Cronin v. Sheldon,ARIZ. ATT’Y, Mar. 2000, at 28.

3. Section 2 of Chap. 140, S.B. 1386 (1996),amended A.R.S. § 12-541 by adding newparagraphs (3) and (4).

4. Jenny Clevenger, Comment & LegislativeReview, Arizona’s Employment ProtectionAct: Drawing a Line in the Sand Betweenthe Court and the Legislature, 29 ARIZ. ST.L.J. 605, 610 and n. 39 (Summer 1997).

5. Chapter 140, S.B. 1386 (1996) Section 1.Intent.A. The Arizona Supreme Court in the caseof Wagenseller v. Scottsdale MemorialHospital, 147 Ariz. 370, 710, P.2d 1025(1985) (en banc) held that an employermay be held liable for civil damages if suchemployer discharges from employment anemployee for a reason that is against thepublic policy of this state. The Court alsoheld that it had the independent authorityto determine what actions of the employerviolated the public policy of this state. Thelegislature affirms that an employer may beheld liable for civil damages in the event itdischarges from employment an employeefor a reason that is against the public policyof this state. However, public policy isexpressly determined by the legislature inthe form of statutory provisions. Whilecourts interpret the common law in accor-dance with Arizonan Revised Statutes sec-tion 1-201, they are not authorized toestablish a cause of action in connectionwith specific acts or omissions that consti-tute a violation of the public policy of thisstate.

B. Citizens have a right to prior notice ofthose specific actions that constitute viola-

AZAT

tions of the law for which they are subjectto civil damages. It is the intent of the leg-islature to confirm that the employmentrelationship is contractual. Laws affectingemployees and employers shall be uniform-ly and consistent applied to all citizens. Thecourt impedes the uniform application oflaws to citizens of the state when it pur-ports to create, on an ad hoc basis, rights torecover civil damages in response to varyingfactual situations before the court. Courtsare not vested with the authority to createpublic policy of the state. When courtsmake pronouncements of public policy onan ad hoc basis, they render it impossiblefor citizens to know in advance whatactions constitute violations of the laws forwhich they are subject to civil damages.

C. The Constitution of Arizona vests thelegislature with the authority to create lawsand the public policy of the state. Article V,section 1, Constitution of Arizona. In con-trast, the courts are established to adjudi-cate cases by applying the laws enacted bythe legislature to facts of those cases.Article VI, Constitution of Arizona. Whenthe legislature adopted the common law toprovide the Court with laws of reference, itdid not intend to vest the courts with theauthority to establish new causes of actionor to independently set for the public poli-cy of the state. Section 1-201, ArizonaRevised Statutes.

D. It is the intent of the legislature toestablish that the courts cannot create newcauses of action. Courts can apply commonlaw causes of action to cases they adjudicateprovided they do not expand, modify or inany manner whatsoever alter the commonlaw causes of action that were adopted bythe legislature pursuant to Arizona RevisedStatutes Section 1-201.

E. In Wagenseller v. Scottsdale MemorialHospital, 147 Ariz. 370, 710 P.2d 1025(1985 (en banc), the court was confrontedwith an egregious factual allegation wherethe employer was alleged to have terminat-ed an employee for failing to publicly inde-cently expose herself during a staff per-formance of the song “Moon River.” Whileas a policy matter, the court reached thecorrect conclusion, it lacked the authorityto make such a holding under theConstitution of Arizona. It is the role ofthe legislature, the elected representativesof the citizens, and not the court, to estab-lish the public policy of the State. Thecourt in Wagenseller reached the correctholding because the alleged acts would vio-late the state’s public indecency statute,Arizona Revised Statutes section 13-1402.

However, the court had no authority tocreate a cause of action. It is the intent ofthe legislature that the public policy of thestate is that the termination of an employeein retaliation for refusing to violate thepublic indecency or other laws of the stateconstitutes a violation of the EmploymentProtection Act subjecting the employer tocivil damages.

F. It is the intent of the legislature that theEmployment Protection Act will not in anyway limit the other protections for employ-ers contained in the laws of theConstitution of the United States, theConstitution of Arizona, the federalstatutes or the Arizona Revised Statutes.

G. As stated above, the employment rela-tionship is contractual in nature. In theabsence of a written contract, the employ-ment relationship is severable at any timeby either the employee or the employer.However, if the termination of the employ-ment relationship violates the public policyof the state as expressly defined in theArizona Constitution and Arizona RevisedStatutes, the employee may bring an actionfor damages against the employer. If astatute provides an expressed remedy a forcause of action, that remedy is the exclusiveremedy for the violation of the statute orthe public policy arising out of the statute.

6. 710 P.2d 1025 (Ariz. 1985) (en banc).7. For a fuller discussion, see R. KELLEY

HOCKER, THE HISTORY, EROSION ANDRESURGENCE OF THE EMPLOYMENT-AT-WILL DOCTRINE, 1 ARIZ. EMP. L.HANDBOOK, Article 1.2 (Thomas M.Rogers, ed. 1995).

8. Payne v. Western & Atlantic R.R., 81Tenn. 507, 519-20 (1884).

9. Builders’ Supply Corp. v. Shipley, 341 P.2d940 (Ariz. 1959); Larsen v. Motor SupplyCo., 573 P.2d 907 (Ariz. 1977). But seeOld Dominion Copper Mining & SmeltingCo. v. Andrews, 56 P. 969 (Ariz. 1899).

10. See Leikvold v. Valley View Cmty. Hosp., 688P.2d 170, 174 (Ariz. 1984).

11. 688 P.2d 170 (Ariz. 1984). Thus, animplied employment contract, like anexpress employment contract for employ-ment for a term, could modify the at-willexpectation that an employer could dis-charge an employee for any or no reason.

12. Leikvold, 688 P.2d at 174. The court iden-tified two types of implied contract terms:implied-in-fact and implied-in-law. Implied-in-fact terms are inferred from the state-ments or conduct of the parties. The cruxof the holding was that implied promises ofjob security as evidenced by employee disci-plinary procedures, written or spokenpromises, or by conduct, could becomepart of the employment contract and limitthe employer’s absolute right to dischargewhat would otherwise be an at-will

employee.13. 738 P.2d 1146 (Ariz. Ct. App. 1987).14. 704 P.2d 1360, 1361 (Ariz. Ct. App. 1985).

Vermillion claimed that he was ordered toconceal the employer’s theft of a customer’sproperty. When Vermillion told the cus-tomer that his employer had stolen theproperty, he was fired.

15. Vermillion, 704 P.2d at 1361-62.16. 710 P.2d 1025.17. Id. at 1033.18. Id. at 1032-33.19. 722 P.2d 250 (Ariz. 1986). Wagner was ter-

minated for “whistle-blowing” when hecalled the chief of police’s attention to thefact that prisoners were being illegallydetained.

20. Id. at 257 (emphasis added).21. Id. at 258.22. 767 P.2d 697 (Ariz. Ct. App. 1988).23. 29 ARIZ. ST. L.J. at 609 and n. 30.24. Id. at 608 and n. 25 (citing Steve Biddle,

The Employment Protection Act of 1996:Restoring the Balance in EmploymentRelationships or Curtailing Employees’Rights? ARIZ. ATT’Y, Sept. 1996, at 35; seealso David Seldon, Testimony in Support ofEmployment Protection Act, S.B. 1386,Before the Arizona House Committee onCommerce (Mar. 12, 1996) (unpublishedsubmission to committee, House ofRepresentatives). “The billed achieved theproper and fair balance between the interestof employees and employers. Employees willbe protected from unlawful conduct byemployers. … Employers will be protectedfrom some of the most costly common lawlawsuits that now face Arizona employers.”Id. at 4.).

25. 29 ARIZ. ST. L.J. at 613 and n. 52.Opponents of the Act had successfullyopposed its enactment in committee bypointing out that an employee of a businesswith fewer than 15 employees would be pro-hibited from pursuing a wrongful termina-tion claim on the basis of a state civil rightsviolation because the state law did not applyto employers of fewer than 15 employees.Referring to the AEPA as the “Freedom toSexually Harass Law,” the opponents“repeatedly proposed a hypothetical to legis-lators asking them to imagine that their 19-year-old daughter was fired for refusing toexpose herself on the job and was left with-out a remedy because the small business sheworked for fell outside the reach of theArizona Civil Right Act. See tapes of March12 Commerce Committee Hearing, supra,n. 24. Note the marked similarity betweenthe fact pattern of this hypothetical and thefacts of Wagenseller. In response to this criti-cism, Representative Pat Conner introduceda floor amendment which changed the defi-nition of “employer” to include personsemploying one or more employees wherethe alleged violation involved sexual harass-ment. Proposed House Amendment S.B.1386, 42d Leg., 2d Reg. Sess.,Representative Pat Connor FloorAmendment #2 (Mar. 28, 1996) (on file


endnotes All Employment Contracts Are Not Created Equal

with the Chief Clerk of the House ofRepresentatives). The amendment wasadopted and became law: A.R.S § 41-1461(2).

26. Chap. 140, S.B. 1386, Section 1(A -E).

27. In Cronin v. Sheldon, 991 P.2d at 238,the Arizona Supreme Court character-ized the AEPA’s preamble as “patentlyunconstitutional.” The preamble never-theless remains “an indication of theLegislature’s intent in enacting the sub-stantive law.” Johnson v. HispanicBroadcasters of Tucson, Inc., 2 P.3d 687,689 n. 2 (Ariz. Ct. App. 2000).

28. The Preface to the AEPA, Chap. 140,S.B. 1386 (1996), Section 1 (Intent)discusses that “[i]t is the intent of theLegislature to confirm that the employ-ment relationship is contractual … ”[Section B] and that “[a]s stated above,the employment relationship is contrac-tual in nature. … In the absence of awritten contract, the employment rela-tionship is severerable at any time byeither the employee or the employer.”[Section G]. Having stated that theemployment relationship is contractualin nature, the AEPA never defined theterm “employment contract.” TheAEPA’s language in proposed Section23-2501 [later renumbered after enact-ment to 23-1501] discusses “[s]ever-ability of employment relationships”and states:

The public policy of this state is that: 1. The employment relationship is con-

tractual in nature.2. The employment relationship is sever-

able at the pleasure of either theemployee or the employer unlessboth the employee and the employ-er have signed a written contract tothe contrary setting forth that theemployment relationship shall remainin effect for a specific duration oftime or otherwise expressly restrictingthe right of either party to terminatethe employment relationship . . .

3. An employee has a claim against anemployer for termination of employ-ment only if one or more of the fol-lowing circumstances haveoccurred:(a)The employer has terminated the

employment relationship of anemployee in breach of an employ-ment contract, as set forth inparagraph 2 of this section, inwhich case the remedies for thebreach are limited to the reme-dies for a breach of contract.

(Emphasis added.) Remaining Sections3b) and c) deal with the classic wrong-ful termination tort remedies providedby Wagenseller and seek to limit theholding of Wagenseller, limiting its tortremedies for wrongful termination in

violation of public policy to violations of astate law or the State Constitution only.

29. See proposed Section 23-2501 [laterrenumbered after enactment to 23-1501](3)(b)]. These included: (i) the civil rightsact prescribed in title 41, chapter 9[Section 41-1401 et seq.]; (ii) the occupa-tional safety and health act prescribed inchapter 2, article 10 of this title [Section23-401 et seq.]; (iii) the statutes governingthe hours of employment prescribed inChapter 2 of this title [Section 23-201 etseq.]; and (iv) the agricultural employmentrelations act prescribed in chapter 8, article5 of this title [Section 23-1381 et seq.]

30. A.R.S. § 23-1501(3)(c)(i).31. Id. § 23-1501(3)(c)(ii).32. Id. § 23-1501(3)(c)(iii). The exercise of

rights under the workers’ compensationstatutes prescribed in chapter 6 of this title[Section 23-901 et seq.]; (iv) Service on aJury as protected by § 21-236; (v) Theexercise of voting rights as protected by §16-1012; (vi) The exercise of free choicewith respect to non-membership in a labororganization as protected by § 23-1302;(vii) Service in the national guard or armedforces as protected by §§ 26-167 and 26-168; (viii) The exercise of the right to befree from the extortion of fees or gratuitiesas a condition of employment as protectedby § 23-202; (ix) The exercise of the rightto be free from coercion to purchase goodsor supplies from any particular person as acondition of employment as protected by §23-203; and (x) The exercise of a victim’sleaves right as provided in §§ 8-420 and13-4439.

33. Id. § 23-1501(2).34. Leikvold, 688 P.2d at 174.35. A.R.S. § 23-1501(2): “The employment

relationship is severable at the pleasure ofeither the employee or the employer unlessboth the employee and the employer havesigned a written contract to the contrarysetting forth that the employment relation-ship shall remain in effect for a specifiedduration of time or otherwise expresslyrestricting the right of either party to ter-minate the employment relationship. Boththe employee and the employer must signthis written contract, or this written con-tract must be set forth in the employmenthandbook or manual or any similar docu-ment distributed to the employee, if thatdocument expresses the intent that it is acontract of employment, or this writtencontract must be set forth in a writingsigned by the party to be charged.”

36. Id. (emphasis added).37. A.R.S. § 23-1501(3)(a).38. 991 P.2d 231, 235 at ¶ 17.39. Cronin, 991 P.2d at 241, ¶¶ 50-51.40. 33 P.3d 518, ¶ 2 (Ariz. Ct. App. 2001).41. “The AEPA ‘limit[s] plaintiffs to three

avenues of relief for claims asserted againstemployers on the theory of wrongful dis-charge, one of which is when ‘the dischargeviolated a statute of this state.’” Taylor, 33P.3d at 522, citing Cronin v. Sheldon, 991P.2d 231, ¶ 17.

42. Id. at ¶ 22.43. Zenaty-Paulson, 2000 WL 33300666 at

*13; cf. Kelly v. City of Mesa, 873 F. Supp.320, 327 (D. Ariz. 1994) (finding thatwrongful termination tort claims in Arizonaare barred by the two-year tort statute oflimitations set forth in A.R.S. § 12-542,citing Felton v. Unisource Corp., 940 F.2d503 (9th Cir. 1991).

44. Zenaty-Paulson also asserted a claim forbreach of the covenant of good faith andfair dealing, which the court found to be aduplicate of a breach of an employmentcontract claim. Zenaty-Paulson, 2000 WL33300666, *18-19. The court, however,stated in its decision that “[a]side fromactions based on the employment contract,there is no other claim for breach ofcovenant in the employment context.” Id.at *19. The court’s language was over-reaching and misinterpreted the specificlanguage of the AEPA. Perhaps the court’slanguage should be explained only in thecontext of the court’s conclusion that all ofthe plaintiff ’s contract claims related onlyto wrongful discharge in violation of anemployment contract restricting the rightof the employer to terminate the employ-ment relationship at will. The court wasnot presented with and did not rule onwhether such contract claims as the failureto pay compensation, breach of an agree-ment relating to job references or nondis-paragement, and similar agreements wouldbe barred.

45. Woodward v. Chirco Constr. Co., Inc., 687P.2d 1275, 1279 (Ariz. Ct. App. 1984)(citations omitted).

46. Schade v. Diethrich, 760 P.2d 1050, 1061(Ariz. 1988) (en banc), quoting Nieto-Santos v. Fletcher Farms, 743 F.2d 638, 642(9th Cir. 1984) (wage statute is inapplica-ble, therefore, to damages for breach of acontract to employ).

47. Schade, 760 P.2d at 1061, citing ApacheEast, Inc. v. Wiegand, 580 P.2d 769, 773(Ariz. Ct. App. 1978).

48. A.R.S. § 12-541(5).49. The Raise the Minimum Wage for Working

Arizonans Act also created a cause of actionfor retaliatory discharge if an employee isterminated for asserting or assisting othersto assert a minimum-wage claim or inform-ing others about their minimum-wagerights. The statute of limitations for bring-ing such a claim is also “two years after aviolation last occurs, or three years in thecase of a willful violation.” A.R.S. § 23-364(B), (H).

50. Southwest Mines Dev. Co. v. Martignene, 64P.2d 1031, 1032 (Ariz. 1937), (interpret-ing a predecessor statute to A.R.S. § 12-543).

51. A.R.S. § 12-548.52. Taylor v. Graham County Chamber of

Commerce, 33 P.3d 518 (Ariz. Ct. App.2001).

w w w. m y a z b a r. o r g 43M A R C H 2 0 0 7 A R I Z O N A AT T O R N E Y

all employment contracts are not created m€¦ · “employment contract” apply to all tort or...

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